Duke Street to invest £500m over three years

Duke Street's 35% stake sale to French asset manager Tikehau will have it back on the fundraising trail, after all -- but not with the average private equity fund.

Duke Street Capital confirmed Thursday it plans to sell 35 percent of its management company to French asset manager Tikehau, which will also be the cornerstone investor in Duke Street Opportunities I, a three-year private equity fund that will make controlling investments in European mid-market companies.

The London-based private equity firm, which last year began operating on a deal-by-deal basis, plans to invest £500 million in European companies over the next three years, according to Duke Street partner Buchan Scott.  

“Some of the capital will be committed by LPs and some will be raised on a deal-by-deal basis,” Scott said, noting prior reports as to a €300 million fundraising target were incorrect. He refused to be drawn on the correct target amount or provide a breakdown as to how much of that £500 million figure will be raised as part of the new fund.

The firm will stick with some deal-by-deal investing as it provides investors with flexibility, Scott said. “It does create good economics [for investors], and the carry is also on a deal-by-deal basis, which is good for us. We haven’t lost an investment due to lack of financing in the recent years. The main advantage of this [cash injection] is Duke Street will be able to execute deals quicker [because we have committed capital].”

The partnership is also expected to expand Duke Street’s deal sourcing capabilities in continental Europe, while Tikehau, whose investment strategies include real estate and credit, will be able to expand geographically as well as across different asset classes. There is no plan, however, for Tikehau to underwrite the debt for Duke Street's deals, Scott said.

“This is an exciting development that supports our new deal-by-deal model with significant committed capital. We are well funded to pursue a number of interesting opportunities in sectors where we have a proven track record and are excited about working with Tikehau to develop a new investor friendly model for private equity,” Duke Street’s managing partner, Peter Taylor, said in a statement. 

As the stake sale is still subject to regulatory approval, the new fund is unlikely to come to market before the autumn, Scott said. After investing this three-year vehicle, Duke Street will decide whether to raise a standard private equity fund, he added. 

The firm's previous fund, Duke Street Capital VI, raised €963 million in 2006 against an €850 million target and is now fully invested.

Duke Street last year abandoned fundraising for Fund VII, which had been targeting €850 million, opting to go forward instead with a deal-by-deal model.

Founded in 1988, Duke Street typically acquires majority stakes in companies in France and the UK with an enterprise value between €50 million and €300 million. Since its inception, it has invested approximately €3.3 billion with a realised IRR of 28 percent, according to a statement.